I’ve been getting some awesome questions by email and can tell there are a lot of people out there really digging deep trying to get to the next level in their trading. One question/comment that I have gotten repeatedly is “how do I overcome the fear of trading after taking lots of big losses” or some version of that question. This question resonates with me very deeply because it was a long, hard battle I had to face myself.
There was a 6 month period in the beginning of my full time trading journey when it felt like there was nothing I could do to put on a winning trade. It was just big loss after big loss and it really started to make me think I was never going to be able to make the turn. I took a step back and completely reevaluated every aspect of my trading and created a plan for going forward. Okay, awesome – now it was time to stack those millions right? Nope – the next problem came up. It felt good to finally go a few days without fearing any big losses while I wasn’t trading and when it was time to test some new ideas I was frozen at my desk in fear. This went on for weeks and I basically reduced my trading size to nothing hoping it would get things under control, but nada.
I vividly remember walking around my office during market hours saying to myself over and over “how the hell am I going to be able to pull the trigger again?” (I do my best thinking when walking around for some reason). So what snapped me out of it? Luckily I read somewhere soon after and wrote on a sticky note I had for years – “great stops take the fear out of trading.” If your max loss per trades rules are for -$50, -$100, -$200, etc and you keep taking losses larger than that then you are never going to trust yourself and never be able to get in control of your emotions. If you don’t yet have the self-control to stop yourself out of a trade manually you MUST put in a hard stop. Yes – we’ve all heard people say that putting in hard stops is just asking for market makers to take your shares but WHO CARES. The other option is to keep taking massive losses undoing all of your hard work or worse… blowing up your account. Losses will happen, but its your responsibility to keep them under control. For a few weeks I literally had my hard stop in seconds after placing my buy order. It felt like a weight was lifted off my shoulders and before you know it my eyes were trained to look exactly for my stop area before even looking for my profit targets. My trading completely turned around because I was no longer constantly digging myself out of holes and my profits were actually starting to rebuild a healthy account. Yes – I still did and do slip up from time to time – but it happens less and less each year.
So if this is a problem you face or you get extremely nervous when putting on a trade I challenge you to figure out where your stop is BEFORE you put on each and every trade for at least the next few days. Write down the exact stop price and do not let your position trade below that level and if you still find yourself letting losses get to big then you must place hard stops. I can assure you that you will be stopped at the very bottom a few times and it will suck. But I can also assure you there will be times when you get stopped out and watch the price fade to oblivion and you’ll sit there smiling thinking about the bullet you just dodged. Once you can limit your losses to a specific amount each time – you can focus on finding trades that will offer you profits of at least 2x that amount and that’s the first key to consistency.
Good luck traders – keep grinding and remember great stops take the fear out of trading!
9 thoughts on “How to take the fear out of trading”
alex, brilliant share. if you cannot pull the trigger yourself then it’s time to physically set a stop loss.
i especially appreciate the insight with regard to a change in focus as a result of relying on stop losses.
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Hi Alex, I had this thought some time ago about the perception of the market. Usually people say they perceive the market as an enemy and describe trading as a fight, struggle etc.
What if the market is actually a friend and when your stop loss is hit it’s market’s way to say “you’re in a wrong trend my friend, sit back and reconsider”.
This doesn’t mean one should immediately reverse position (even though many times it’s the right thing to do) but perhaps take into account bigger volatility?
It may also be another way to take fear out of trading or replace the fear of pulling a trigger, which is impacting one’s trading negatively by a fear related to risk which I believe is good…
yes – people who perceive that the market is against them have a losers mindset. the thought needs to be shifted from the market is my enemy to i am my own worst enemy to be able to make the necessary changes to become consistently profitable.
in truth, such a mindset goes way beyond trading. how one embraces life will most likely be the same. the “need to change” can actually add to the fear. if one can simply begin to observe how such a mindset impacts their experience and interaction of/with life the “need to change” no longer is a focal point. one could also say “the need to change” is also fear driven.
Thanks for the advice , I’m going to put your loss quote on a board and nail it above my desk ….. thanks 👍
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Thanks a lot Alex. This perfectly applies to my recent problem of not entering a planned trade due to fear of losses!
Thank you for the help!
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I am glad I came across your twitter account.
I missed two good trades today that could have netted me about $ 600-$700 each. However, I was too scared to enter any of the trades because in the past two weeks I had sustained some losses that were greater than my max trade loss amount.
I feel a lot better now after reading your post. I now know what I need to do for the next trading day.
Great post. Thanks Alex. Do you mind sharing how you would do your nightly scan and get the watch list ready for next day? What is the settings you are using for these scans? Thank you.
Yes – I’ve been meaning to do this for a few weeks but had to spend some time refocusing on my process. That will be my next project when I ramp things back up